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Sunday, July 15, 2012

Gold under the gun

No matter how hard global central bankers try to inflate away the intractable debt-bomb that continues to explode in slow motion, they just cannot seem to make any headway.

The folly of QE-1 and QE-2 have done nothing but exacerbate the contrived bubble in monopoly bonds, which is the only fuel known to financial alchemists that enables a fraudulent debt-based Wall Street-Washington-Centric and global economy to function.

Ever since the big end-game bang in 2008, the powers that be are doing everything possible to preserve their totalitarian monopolies.

We all failed BIG-TIME in allowing these statists to re-write the rules and elevate their powers in assigning those responsible best capable of fixing things. They fixed things all right – for themselves. While we had them begging on their knees, we should have let everything fail once- and-for-all, liquidating all of the egregious debts brought about by the grand masters of the financial universe and their enabling fraudulent monopolies. Had we done so, our world would not have ended – THEIR world would have ended, and more likely than not, we would already be well on the road to recovery instead of serfdom. The next time they come calling – and they will come calling – DON’T BE FOOLED AGAIN.

Back to the surrealistic point: Crying out-loud, what banker in their right mind would lend to overleveraged and unfit borrowers at such ridiculously low interest rates. Short of putting bankers at gunpoint or some twisted operational statist equivalent, the excess reserves building in the system are going nowhere until things change and RESET themselves in dramatic fashion.

Short and Near-Term Outlook:

Yes, something certainly appears to be afoot throughout the whole of the financial sphere. Markets seem to be reaching inflection points whereby they are either going to break down dramatically or crack-up in similar fashion.

With tension and compression building to such levels, we suspect the desired statist outcome would be for an erratic non-directional rollercoaster resolution as opposed to a definitive and sustainable run in either direction. Only time will tell which, but no matter the outcome going forward, it is likely to garnish some headlines and attention.

In the chart above, we see gold bumping up against its short-term downtrend at the 1596.50 print high. The rise from 1554.40 harbors potential to affect an impulsive five-wave advance however, the jury remains out, as we show only three-waves of advance thus far.

Bear in mind the failure of a similar five-wave advance, albeit smaller, from the 1564.40 pivot low. At present, gold continues to render lower lows and lower highs, confirming its downtrend of the past 10-months.

The chart is self-explanatory for most however, we will enumerate some contingencies that should enable one to maintain a clear grasp of measure and status over the short-term.

Bullish:

As long as 1554.40 holds pivot low, we cite a 43-pt. buy trigger contingent upon a breakout and sustained trade above the falling green trendline trajectory so noted.

As long as gold is able to sustain trade and closes above 1582, a price target of 1667 shall remain defended.

Upon resumption to the downside, so long as gold is able to maintain trade and closes above 1578, the potential for another leg up shall remain.

Bearish:

As long as 1639.70 holds pivot high, we continue to monitor an elected sell trigger of 77-pts, which carries a downside price target of 1520.

Upon resumption to the downside, especially if 1596.50 holds pivot high, sustained trade and closes beneath the 1578 level will raise odds for a retest or breach beneath the 1554.40 low.

Upon decisive resumption to the downside, as long as 1625.70 holds pivot high, a breach and sustained trade beneath 1556 will trip a 75-pt. sell trigger citing a downside target beneath 1485.

“I would today argue there is a momentous unappreciated cost to central bankers’ “reallocations” and “incentive distortions:” they’ve nurtured one massive, and now hopelessly unwieldy, “crowded trade” throughout global risk markets. And, as seasoned traders appreciate, once a trade becomes “crowded” the nature of how a trade – how a market – performs tends to turn highly unpredictable, erratic and, in the end, unsatisfying. Over time, fundamental developments are overshadowed by the brute force of market technicals. For example, “crowded” short positions will tend to “melt-up” into dramatic short squeezes before eventually collapsing. And crowded longs tend to turn highly speculative, yet inevitably susceptible to air-pockets and abrupt downdrafts. Locate a “crowded trade” and you’ve found a captivating place where it’s easy to lose money. In general, crowded trades fuel speculation, unpredictability, and Bubble Dynamics – along with a lot of frustration and eventual disenchantment.”

The US and Global economy is turning Zombie-Japanese

If the statists succeed in temporarily solving the incalculable debt-crises by somehow unleashing yet more debt-based money to kick-the-can further, or succeed in gracing us with the potential splendor of experiencing more green shoots than had graced us the last time around, then gold is going to head much, much higher.

We suspect those embedded at the helm of debt-based power, and those entrenched with monopoly control of debt-based money creation would rather preside in totalitarian dominance over a prolonged Japan-style deflationary period as opposed to allowing the system to reset, and affecting the needed repairs to the many structural flaws inherent within it.

As long as markets continue to react similarly to the current statist prescriptions, gold shall remain under the gun of downward deflationary pressures. One needs look no further than the results of what 20-years of zombie-induced deflationary monetary policies have brought to Japan.

Since peaking at $1,920 dollars an ounce in September of 2011, trends in gold have turned down in all three timeframes. Granted, the super long-term secular uptrend remains intact, and it shall remain wise regardless of price, to continually apportion and occasionally rebalance physical possession of gold to a ratio of 10% - 20% of one’s entire net worth.